Investing in the stock market is a great way to build lasting wealth. It can also be an excellent way to let your money work for you by investing in dividend stocks. These are stocks in companies that pay shareholders, usually on a quarterly basis, a share of their profits.
In its study, "The Power of Dividends: Past, Present, and Future," Hartford Funds demonstrates the pivotal role that dividends have played in the stock market's overall returns. Since 1960, 95% of the S&P 500's cumulative total return has come from compounding and reinvested dividends.
Not only do you benefit from passive income from dividend stocks, but these companies also tend to be some of the best stocks to invest in. Companies that increase their dividend payments over time outperformed, with annual returns of 10.2% and lower volatility. Meanwhile, non-dividend-paying stocks delivered meager returns of 4.3%.
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The reason for this outperformance is that companies that consistently pay dividends tend to have sound business models, steady cash flow, and prudent risk management. So if you're searching for passive income, or just looking for stocks to diversify your portfolio and have $2,000 to put to work, here are three excellent dividend stocks to scoop up today.
Collect dividends every month with this real estate stock
Realty Income (O +0.29%) is a real estate investment trust (REIT) that owns and leases over 15,000 commercial properties under long-term, triple-net leases.
With triple-net leases, tenants cover most operating costs, including taxes, maintenance, and insurance. As a result, the trust's expenses tend to be fixed and predictable, resulting in stable, highly predictable cash flows. Additionally, leases typically last 10 to 20 years and include built-in rent escalations, providing reliable long-term cash flow.
NYSE: O
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One factor that makes Realty Income attractive to investors is that it pays monthly dividends, rather than quarterly, as most dividend payers do. For example, investors will receive a dividend of approximately $0.27 on Dec. 15, giving investors an annual dividend yield of 5.6%.
Additionally, Realty Income has a long history of raising its dividend. Over the past three decades, Realty Income has increased its monthly dividend 133 times, making it a solid choice for those searching for reliable income.
The world's largest asset manager offers income and growth
BlackRock (BLK 2.61%) plays a pivotal role in financial markets, offering a diverse range of investment options, including an extensive list of exchange-traded funds (ETFs) through its iShares brand.
The company has benefited from growing trends in passive investing thanks to its low-cost and diverse ETF options. Today it operates as the world's largest asset manager with over $13.5 trillion in assets under management (AUM). Its ETFs also provide exposure to a range of themes across industries, sectors, and other factors, enabling customers to build portfolios tailored to their risk profiles. This is why its iShares products account for about one-third of the global ETF market.
NYSE: BLK
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The asset manager collects a small fee on its ETFs and other offerings. Because its investment platform is so large, it generates substantial recurring revenue for the company. On top of that, its business doesn't require extensive infrastructure or capital equipment, resulting in a capital-light model that delivers strong margins.
BlackRock has raised its dividend payout for 16 consecutive years and offers a yield of around 1.8%. Meanwhile, the stock has returned over 14.8% annually over the past decade, including reinvested dividends, making it a solid stock for investors seeking a blend of income and growth.
Earn a dividend yield of over 9% with this company
For investors seeking higher income and willing to take on a little more risk, Ares Capital Corporation (ARCC 1.84%) offers a high dividend yield of over 9%. Its high yield is due to its tax structure as a business development corporation (BDC). That's because BDCs are required to distribute 90% of their taxable income to shareholders, making them a pass-through entity.
NASDAQ: ARCC
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Over the past several decades, BDCs have filled the lending gap for smaller, middle-market companies, which are often overlooked by the traditional banking sector. That's because stringent capital and risk requirements have led banks to shift their focus to larger businesses, which have more liquid debt and lower risk.
Lending to middle-market companies carries risk, including the potential for defaults in a weakening economy. The recent failures of First Brands and Tricolor, two large borrowers in the private credit ecosystem, have put BDCs like Ares Capital under the microscope and put the stock under pressure.
That said, Ares has more than 20 years of experience lending to these companies and has delivered solid performance, including during the Great Recession. For investors willing to tolerate some risk, Ares Capital is an attractive high-yield dividend stock to scoop up today.
